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Condo rents hit new high amid ‘seemingly insatiable’ demand

A record 6,541 GTA condos were rented via the MLS system in the third quarter of 2013, up an unprecedented 39 per cent from the same time last year.

By the end of this year, about 20,000 condo units, most of them in the City of Toronto, will have been rented largely to young professionals keen to live near work and major transit lines. That’s up from the 15,355 last year. (Pawel Dwulit / THE CANADIAN PRESS)

The “seemingly insatiable” demand to live close to downtown has driven condo rents to a new high of $1,875 per month and shows no signs of letting up despite a surge of new units coming on the market.

A record 6,541 GTA condos were rented via the MLS system in the third quarter of 2013, up an unprecedented 39 per cent from the same time last year, says condo market research firm Urbanation in a new report released Friday.

By the end of this year, a total of about 20,000 condo units, most of them in the City of Toronto, will have been rented largely to young professionals keen to live near work and major transit lines.

That’s up from the 15,355 rented last year, and 13,674 in 2011, says Urbanation.

And that’s not counting thousands of others that will be leased via classified sites such as Kijiji and Craigslist, making most of those granite and glass skyscrapers sprouting up on the skyline a now critical part of Toronto’s apartment stock.

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What’s especially stunning about the quarterly numbers is that they show the escalating impact of investors on Toronto’s exploding condo sector – and how they are dramatically affecting how and where tenants live.

And this may just be the tip of iceberg. The condos now coming on the market were actually bought in the preconstruction phase back between 2007 and 2009 and don’t yet include rentals that will result from the frenzied peak of investors purchasing in 2011.

Most of those 28,190 units – at least 40 per cent of which are believed have been bought by people who don’t plan to ever live in them – won’t be completed, or put up for rent, until at least early 2015.

That coming rush of rentals should lead to a more “balanced” market, says Urbanation, and ease demand that remains so strong, especially for new condos in the core, that bidding wars have broken out.

The report shows that, in just a year, the average size of condos for rent in the GTA has shrunk 20 square feet, to an average 778 square feet. That’s largely because there’s been a big jump, some 91 per cent, in units under 500 square feet.

Those smaller units are popular with investors, and their growing presence on for-rent listings shows that those buyers are “now clearly affecting the condominium rental market,” the report says.

There is demand because their rents are lower, says Urbanation. In fact, their popularity helped keep the overall average rent increase for the GTA condo market to just 1.6 per cent in the third quarter, year over year, in spite of the fact overall average per-square-foot prices for rental condos across the region were up 4.2 per cent to $2.41, says Urbanation.

What’s especially telling is where all these new rental condos have been popping up.

Some 52 per cent were in the epicentre of the boom, the City of Toronto, where almost 3,370 condo leases were signed, up 79 per cent year over year, says Urbanation.

Close to 600 were concentrated in west-end Liberty Village, where a rash of new completions were quickly snapped up by young professionals happy for rents slightly less than in the core but within eyesight of the CN Tower.

A distant second was North York, where rental volumes were up 10 per cent, to 1,273 suites, mostly around the towering North York City Centre area.

Mississauga saw an increase of 25 per cent from 634 new condo rentals.

Of the total of 4,609 new units registered across the GTA in Q3 of 2013, 24 per cent were put up for rent and less than two per cent were put up for sale, suggesting investors are looking to hold for the longer term rather than flip for a quick profit, says Urbanation.

The perfect storm of forces driving this extraordinary demand for rental condos is “more structural than temporary,” says Shaun Hildebrand, senior vice president of Urbanation and a former GTA market analyst with the Canada Mortgage and Housing Corporation.

The “unrelenting” growth of low-rise house prices, and tougher mortgage lending rules is forcing potential first-time buyers to rent longer. Even condos aren’t proving to be as attractive an alternative for buyers as many people think, with the gap between owning and renting a condo now about $665 a month, says Urbanation.

Demand for rentals remains high, at least for now, because the bulk of echo boomers are still in their peak rental years. As well, immigration to the region remains strong, says Hildebrand.

Adding to all that has been the unprecedented shift to downtown living.

For that, people seem willing to pay a hefty price – even if it keeps climbing for spaces that just keep shrinking.

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